Expat pensioners face frozen income

Retiring overseas may seem like a warm and relaxing way to spend your golden years, but if you want to retire to any one of 120 destinations, including Canada, the Caribbean and Australia, you will pay a massive and utterly unfair price - you will have your state pension frozen, and it will gradually become worth less and less as you see inflation destroy it.

So why is this happening, and how can it be fair?

Unfair pensions

The issue depends entirely on where you retire to. Around 5.3% of all pensioners (635,300 of them) have retired to Europe, the US or any one of 40 countries which have an agreement with the UK. It means their pensions increase in exactly the same way as if they lived in the UK.

It's the 4.4% of pensioners (55,750 of them) who retired to Commonwealth countries and elsewhere who have had their state pensions frozen at the rate it was paid at on the day they left. The five affected countries where British ex-pats are most likely to live are Australia, Canada, New Zealand, South Africa and India.

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For those who live many decades in retirement, their pension can easily dwindle away. The current rules mean that a pensioner who paid National Insurance contributions throughout their working life but moved to overseas and took a pension from 1995 still only gets £59.20 per week. Many are living on less than £30 a week.

Clearly this is a ridiculous anomaly. All the pensioners are paid an income that depends on the number of years they paid National Insurance between the ages of 16 and retirement. They all paid at the same rate, so it's clearly wrong that they should have pensions paid out at different rates.

Why?

The source of the problem is that those countries which do uprate pensions in line with inflation do so because of legislation, which is renewed every year. It's this same legislation that means they are still entitled to their Winter Fuel Payment every year - despite the fact that many of them are living in dramatically warmer climes. Those countries which don't uprate the pension simply don't have the legislation.

There have been a number of legal challenges by campaigners, but after fighting through the British and European courts, last year their appeal in Europe failed and they are back to raising awareness and putting pressure on the government. Last week the International Consortium of British Pensioners stepped up their campaign for fairness, by launching a Pension Justice website.

They say that half of all people between the ages of 45 and retirement would like to move overseas after retirement, but 62% of them don't know that their pensions will be frozen if they move somewhere without an agreement.

The Runnymede Trust has argued that the situation discriminates particularly against those who were encouraged to move to the UK from the Commonwealth in order to help rebuild the country after the second world war. They are being punished once they retire to their country of origin.

Mark Bodega, Director at currency broker HiFX comments "The cost of living for expats receiving a fixed income in sterling has already shot up in the last few years as sterling has depreciated. So the fact that their income does not rise in line with inflation as it does for pensioners in the UK is a double blow for hundreds of thousands of pensioners who are already struggling".

What can you do?

If you are living overseas and affected by the change, Bodega recommends: "Any pensioners living abroad who want to get the most out of their pension payments and cannot afford to see the value of their pension income decrease any further through currency fluctuation should consider using one of the Regular Payments Abroad services offered by many currency specialists in the UK."

If you are struck by the unfairness, the Consortium is also calling on people to sign its e-petition. At the moment there are just under 20,000 signatures, and it needs 100,000 by September in order to have the issue debated in parliament.

18 Comments

Thank you Sarah Coles for your support and for highlighting the cruel predicament of the "frozen pensioner". As informative and supportive as you article is, it does contain a error. It's probably a typo, but it does subtract from the importance of what you say. In your article you said the the number of expat pensioners affected by this cruel policy was 55,750 - perhaps you should have added a zero after 55 and made it 550,750. That would have been a bit closer to the mark!!This policy is inhuman - it's also all of what previous posters have already in critisism of it, said so I won't repeat thier words. However I will second and support ANY critisism of the UK pension policy, in it's unjust, unfair and discriminatory treatment of the UK expat frozen pensioner.

Demonstrating some signs of embarrassment in 1996-7, the Parliamentary Select Committee on frozen pensions reported the following;- " Britain was alone among OECD countries in discriminating between pensioners in different overseas countries, rejecting any suggestion of compromise". I.e they were showing a totally intransigent approach to the frozen pension issue.

The report goes on to say "Surely no one would have deliberately designed a policy of paying pensions to people living abroad intending to end up in the position we are at today .....A simple change in British Law could enable up-ratings to be paid in any or all overseas countries provided there was the political will to do so!"

Following this report and despite the evident embarrassment nothing ever happened and the NI account continued to expand significantly by £ billions each year until it has now reached almost £40 billion, to some extent at a cost to 500,000 expat pensioner still on frozen and gradually depreciating retirement income.

What about the centenarian lady in Australia on a full pension since 1974 of £6.12/week! Fortunately for her the Australian Government is not as hard hearted as the British have proven and has assisted this elderly lady at a cost to the Aussie taxpayers. The British approach to State pensions for some expats should be condemned and rectified.

Well its a bit of joke, but isn't the Uk so no surprise there then, its about screwing as many pensioners as they can and then the sunny spots are just the reserve of the rich. Working class people should know their place and retire to Skegness or Bognor.

Anyway that aside you can transfer your state pension to NZ and then it is graduated but they do take all your pensions into account so you still lose out to some extent

It is not quite accurate in the article to say that pensions are not uprated in the Caribbean - it depends on where you live in the Caribbean. If you live in Jamaica, Bermuda and Barbados, your pension is uprated each year. If you live in the US Virgin Islands you pension is uprated each year. If you live in the British Virgin Islands or any other Caribbean countries not mentioned above your pension is frozen. It just shows how illogical and unfair the existing system is.

It shouldnt matter where you live when you retire, you paid into a pension and expect it and any increases to be paid in full, especially if you are residing in the EU, anything else is robbery and unfair, this is not new it has been going on since 2000

For the benefit of dvdellio9, I would like to add that if he had read what I have put in my comment then he would know that we do not want or expect the benefits that you get in the UK.As for the state pension, and that is waht we are talking about, we all paid into the NI fund throughout our working life and on retirement should all get the pension that we ahve paid for. It bis as simple as that.You are arguing like the politicians who do not wish to see any injustice or discrimination over this issue.Perhaps you can tell me why a pensioner in the USA gets the annual uprating while the pensioner in Canada does not. Similarly,one in the Phillipines gets it whilst the one in the Falklands is frozen.There are so many anomolies to this rediculous situation that makes one wonder what we have for politicians who could get things so screwed up that they have to misinform the MP's to try and make an valid reason to continue the freezing. If you don't believe me write to your local MP and ask about the freezing. And did you know that this freezing is as a result of a regulation that is included in the annual uprating of the pension. You know - the small print that dishonest people put in hoping that no-one will notice. So when they vote for the uprating they also vote for the treezing. Dispicable , dishonest and unjust whatever you can say. Don't ask about paying taxes or the Australians will be onto you.

You are mistaken. You pay in for the pensions of those who are drawing out at the time. I'm paying for you, you paid for your parents. When i retire i won't get back what I paid in, you got that. I will get what my kids pay in. By then the government will have reduced it so much because of population aging and a smaller tax base that i will get less than you do .

If people choose to retire to another country they should consider all the financial pitfalls before doing so. As far as receiving heating allowance when in these warmer climates it seems unfair for them to receive it.